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Small and large cap stocks are widely popular for a variety of reasons, however, mid-cap companies such as Xinyi Solar Holdings Limited (HKG:968), with a market cap of HK$18.4b, often get neglected by retail investors. However, generally ignored mid-caps have historically delivered better risk-adjusted returns than the two other categories of stocks. This article will examine 968’s financial liquidity and debt levels to get an idea of whether the company can deal with cyclical downturns and maintain funds to accommodate strategic spending for future growth. Don’t forget that this is a general and concentrated examination of Xinyi Solar Holdings’s financial health, so you should conduct further analysis into 968 here.
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How much cash does 968 generate through its operations?
Over the past year, 968 has ramped up its debt from HK$7.5b to HK$8.5b , which is made up of current and long term debt. With this rise in debt, 968 currently has HK$1.6b remaining in cash and short-term investments for investing into the business. Additionally, 968 has generated cash from operations of HK$1.9b during the same period of time, resulting in an operating cash to total debt ratio of 22%, meaning that 968’s operating cash is sufficient to cover its debt. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In 968’s case, it is able to generate 0.22x cash from its debt capital.
Can 968 meet its short-term obligations with the cash in hand?
At the current liabilities level of HK$7.8b liabilities, it seems that the business has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.04x. For Semiconductor companies, this ratio is within a sensible range since there’s a sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Does 968 face the risk of succumbing to its debt-load?
With debt reaching 69% of equity, 968 may be thought of as relatively highly levered. This is not unusual for mid-caps as debt tends to be a cheaper and faster source of funding for some businesses. We can test if 968’s debt levels are sustainable by measuring interest payments against earnings of a company. Ideally, earnings before interest and tax (EBIT) should cover net interest by at least three times. For 968, the ratio of 14.85x suggests that interest is comfortably covered, which means that debtors may be willing to loan the company more money, giving 968 ample headroom to grow its debt facilities.